How to alleviate BEPS 2.0 Pillar Two data challenges

Intrinsic data quality issues, like incomplete descriptions or incorrect entries, still most often require human intervention to resolve. AI can quickly identify these issues, but manual review and correction are necessary to ensure data reliability and accuracy. Balancing AI and human oversight can optimize efficiency of data management for tax calculations.

AI has become a major driver of data standards and quality in finance and tax functions. To fully leverage AI's capabilities, organizations must have quality source data, consistent data standards and strong data processes. The explosion of generative AI (GenAI) has put a spotlight on these requirements, pushing organizations to undertake data remediation projects to improve data quality and standards.

“AI drives the need for data standards, since confidence in the underlying data is essential to unlocking the value that AI can deliver,” says John Farrelly, EY Global Compliance & Reporting, Technology Leader.

Defining and adopting data standards is crucial for effective BEPS compliance and reporting. Companies need to establish common data sets and naming conventions, involving mapping data from various ERP systems to these standards. AI can assist in this mapping process, but the transition to standardized data practices is a long-term endeavor requiring governance, oversight and adaptability, Farrelly says.

Managing legislative divergence

Differences exist in the timing and approach in which the GloBE Rules are legislated across different jurisdictions, creating an additional layer of complexity for companies. Beyond legislative differences, countries may approach enforcement differently, making the implementation of global minimum taxes more challenging. Therefore, understanding and implementing the evolving rules requires a deep understanding of the GloBE Rules as agreed and the specific tax laws of each jurisdiction in which a company operates. Incorporating jurisdiction-specific rules into technology calculations facilitates compliance with the local requirements, but ambiguities in tax laws require professional judgment to determine appropriate GloBE calculations and disclosures.

“The consensus on global minimum tax rules is often very high level. When it comes to implementation, local country interests and tax policy considerations often prevail over global harmonization. It is critical that deep tax expertise, tax processes and technology come together when implementing GloBE reporting and compliance in an MNE,” says Daniel Gentsch, EY Global International Tax and Transaction Services Deputy Leader.

The challenges and opportunities in BEPS 2.0 Pillar Two data reporting

Data accessibility, especially for details of current and deferred tax expense stored in decentralized systems (or spreadsheet files), is a common issue for global minimum tax calculations. Understanding an organization’s data landscape is crucial. Identifying where data resides and automating its extraction into a central repository can streamline the process. Although tools exist to aid in data consolidation, maintaining accurate and updated data requires continuous effort, including proper data governance and monitoring changes in the systems where data is stored. Brayne emphasizes, “Understanding the data landscape and where all required data resides in the organization is crucial for data accessibility.”

The quality of input data is paramount for effective Pillar Two GloBE compliance and reporting. Companies should implement solid processes and controls to ensure data reliability. Organizations should prepare in advance for future compliance requirements, which will become more stringent by 2026. While tax provision and forecasting processes might be manageable with basic tools, compliance will demand more robust solutions.

Implementing data standards and structures for GloBE reporting offers broader benefits, such as improved tax and finance management. High-quality, consistent data provides better insights into optimizing legal structures and business operation and drives efficiency in reporting and compliance activities beyond BEPS 2.0 Pillar Two requirements. ”Operating multiple ERP systems due to acquisitions and mergers further complicates data consistency,” Farrelly notes. "Even within the same ERP framework, data recording practices can vary significantly. Tools are available to help standardize and harmonize data."

An action plan

BEPS 2.0 Pillar Two is a fundamental change to how global companies are taxed. The new tax regime introduces significant tax reporting and compliance obligations. Companies are facing practical challenges not encountered before, which will require implementation of new processes and technology to manage.

While there are no one-size-fits-all technology solutions for BEPS 2.0 Pillar Two, tax leaders should determine how best to use technology to enable their tax functions. Prompt action not only will help achieve compliance with the global minimum tax but also can provide forward-thinking multinationals with a strategic advantage in other areas of reporting, such as environmental, social and governance (ESG), transfer pricing and Country-by-Country Reporting (CbCR).

Effective global minimum tax compliance and reporting requires a comprehensive review of existing data, systems, processes and personnel. Companies should ensure their chosen technology solutions are secure, reliable and capable of maintaining calculation integrity. Reviewing and updating the record-to-report process for all global minimum tax reporting dimensions – including business planning and forecasting, estimated tax payments, interim reporting, year-end group and statutory reporting, compliance and controversy – is essential to ensure readiness.